We have an environment where every major central bank is pissing money left and right. The so called "quantitative easing" is practiced by all major players. Even China is doing it indirectly, because they tied their exchange rate to the other currencies.

In this environment of competitive devaluations it is not a bad thing to have weak Forint.

The other plus is that the Hungarian Central Bank has a lot of room to play with: the rate is 5.25% and that is a long way from zero. The other banks have already depleted themselves to near 0% rates, and they have run out of options (besides printing money).

2:58 pm March 20, 2013

Andreas Simorodoulou wrote:

Perhaps it's a good thing the old guard at the NBH are gone. With a Russian takeover of Cyprus banks imminent, compromising info on certain Hungarian "investors" will soon be in the hands of Putin.

2:40 am March 21, 2013

Uncle Dagobert wrote:

I can see that people are commenting who do not have the slightest idea about Hungary. Hungary is a country where all sectors of the economy (households, corprates, state) has a fairly high share of foregin currency debt. As a result a significant depreciation of the currency could lead to a banking crisis and the temporary positive impact on exports and GDP would be wiped out by negative balance sheet effects. Moreover, Hungary is also a small open economy with a fast impact of the exchange rate of import prices and inflation. Therefore in Hungary cannot sustainably boost economic growth by currency depreciation.

It is also good to note that it is not an "old guard" who left NBH. On the contrary, a very much old guard political appointee is taken over the central bank, firing the best experts due to political considerations, and replacing the high professional standards and analytical work at the NBH with unconditional obedience of party lines. Some of the questions in the new (very incompetent) governor's tender offers price for economists to write studies proving that monetary policy was so far wrong in Hungary, and write other studies showing that the recent rate cuts under the monetary council dominated by other party soldiers benefitted the economy. Feels like being back to the 1950s...

6:00 am March 21, 2013

Dagobert, go get a brain. wrote:

And after that critique, what actionable item would Uncle Dagobert propose for strengthening the Hungarian economy?

The current leadership is working exactly on that problem of converting back all debts into Forints, and that way "all sectors of the economy (households, corporates, state)" would be relieved of the forex risk.

And with or without those NBH studies, the whole world knows that "monetary policy was so far wrong in Hungary", because if it wasn't we would not face the present day crisis. It doesn't take a genius to see that.

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